IT risk puts business at risk

Sep 18, 2007

If a company's IT systems are compromised, there could be very real and devastating effects on the business as a whole. But, while IT in more central to business success than ever before, most companies haven't yet adjusted the processes for IT decision-making and risk management.

Gartner adds that increased dependence on the smooth functioning of IT has amplified the business impact of IT risk incidents.In the book "IT Risk :Turning Business Threats into Competitive Advantage", published by Harvard Business School Press, Richard Hunter, group vice-president and Gartner fellow in Gartner Executive Programmes, and George Westerman, research scientist in the Centre for Information Systems Research at the MIT Sloan School of Management, examine how IT risks directly impact business performance, and advise business executives on how they can manage IT risk as business risk with business consequences."IT risk has changed," says Hunter. "IT risk incidents harm constituencies within and outside companies. They damage corporate reputations and expose weaknesses in companies' management teams. Most importantly, uncontrolled IT risk dampens an organisation¹s ability to compete."He cites the examples of a failed software implementation at a pharmaceutical manufacturer that led to the company¹s bankruptcy, a data theft at CardSystems Solutions that prompted the company's two largest customers – Visa and Mastercard – to defect, and errors in a tax-credit management system at the UK Inland Revenue that led the organisation to pay out over £2-billion in erroneous tax credits."In many companies, it is difficult for business and IT people to exchange information about IT risks in a mutually meaningful way," says Hunter. "To make effective decisions about IT risk, business executives need to know what happens to the business when technology fails or underperforms. Furthermore, any IT risk must be understood in terms of its potential to affect all of the company objectives that are enabled by IT. IT risk is too important to be delegated entirely to the IT organisation."The authors define IT risk as a threat to any of four interrelated business objectives:* Business objective: Availability; IT risk: Will a company¹s IT systems and business processes continue running, and will they recover from interruptions?* Business objective: Access; IT risk: Do the right people in an organisation have access to the data and systems they need to do their jobs? Are the wrong people blocked from access to those data and systems?* Business objective: Accuracy; IT risk: Can a company¹s IT systems be relied on to provide correct, timely, and complete information that meets the requirements of management, staff, customers, suppliers, and regulators?* Business objective: Agility; IT risk: Do the organisation¹s IT systems possess the capability to change if the company acquires another firm, completes a major business process redesign, or launches a new product or service?"No enterprise can be completely free of IT risk. Like any other risk, IT risk is something to be managed, not eliminated," Hunter says. "Management means making trade-offs between risk and return, between the perils a company can bear and the risks it would rather avoid. But until now, business managers have lacked the tools and disciplines to manage IT risk in these ways."Hunter says there are three disciplines that enterprises must master to manage IT risk effectively:* A solid foundation of IT assets, people, and supporting processes and controls that enable executives to manage the right risks in the right order.* A well-designed risk governance structure and process: integrating IT risk management into every business decision to identify, prioritise and track risks.* A risk-aware culture, nurtured from the top that attunes people to the causes and solutions for IT risks and that increases vigilance across the organisation. "These disciplines are complementary. Together, they aim to improve risk management capability and giving business and IT people a language to ensure that IT risks stay under control," he adds. "Enterprises should choose their focal discipline based on their culture, their circumstances and their capabilities, but ultimately they must be competent in all three."The most dangerous risks are the ones that are never considered, or considered too late. Executives need to look to the future. IT risk management is working the way it should when it is simply part of the way the company does business."